Impendle Municipality calls on National Treasury to lift grant payment suspension

The Chairperson of the Committee on Cooperative Governance and Traditional Affairs, Dr Zveli Mkhize, emphasized that the National Treasury's decision to freeze R13.5 billion in equal share transfers to 69 municipalities that committed irregularities cannot be viewed in isolation from other issues identified during oversight activities.

Context of the Treasury's Decision

Dr Mkhize addressed the press during a briefing by the Parliamentary Cluster Oversight Committees on Thursday. He covered the results of the national audit for 2024/25 and joint monitoring of financial and management difficulties in municipalities. The Committee welcomes the Treasury's intention to suspend equal share transfers to municipalities that failed to comply with financial norms and other financial management directives.

He urged the affected municipalities to 'expeditiously meet the Treasury's conditions' so that funds can be released and communities do not face additional difficulties due to management and financial breakdowns. These conditions relate to compliance with legislation, having credible action plans to eliminate unauthorized, irregular, fruitless, and wasteful expenditure, and applying consequences for financial and management violations.

Broader Picture of Accountability

Mkhize noted that this decision cannot be viewed in isolation as it is part of a broader picture of accountability long raised by Parliament, the Auditor-General, the Treasury, CoGTA, provincial governments, and other institutions. Many municipalities affected by the Treasury's decisions have already undergone oversight by CoGTA committees, the Standing Committee on Public Accounts, and the Standing Committee on the Auditor-General for joint monitoring.

According to Mkhize, the problems reflected in the Treasury's interventions align with those repeatedly identified in audit results and oversight activities. These include unfunded budgets, weak controls, procurement irregularities, low revenue collection, high water and electricity losses, irregular spending, and lack of sanctions for proven misconduct.

Municipal Audit Results

He also commented on the consolidated general report on local government audit outcomes for 2024/25, presented by the Auditor-General (AG). The report confirms some progress but also demonstrates the extent of remaining challenges for government transformation. The Committee is pleased with the reduction in qualified audit opinions. The number of such opinions decreased to eight in 2024/25 compared to 29 in 2020/21, indicating progress, as a qualified opinion is the worst audit outcome, meaning the AG could not obtain sufficient reliable evidence of the use of public funds.

Mkhize also positively assessed the 98% rate of timely submission of annual financial reports, stressing that timely submission is not just an administrative obligation but a critical step towards accountability that cannot be ignored.

Persistent Serious Challenges

Despite improvement in 72 municipalities since the 2020/21 financial year, Mkhize insists on an honest acknowledgment of persistent serious problems. For instance, 145 municipalities, representing 57% of the country's municipalities, maintain the same audit result as in 2020/21. Only 39 municipalities received an unqualified audit, indicating that effective and good governance remains the exception, not the rule.

The Committee is particularly concerned about the regression of 38 municipalities since 2020/21, including those that provide a significant portion of the local government budget. None of the eight metros received an unqualified audit in 2024/25, and the number of metros with a qualified opinion increased from two to five. This seriousness cannot be understated, as metros manage large budgets in billions of rand and serve millions of people.

Overall Responsibility for Failures

In Dr Zveli Mkhize's view, municipal failures are rarely isolated incidents; rather, they are failures across the entire chain of accountability. When metros face management and financial problems, local communities suffer from deteriorating road conditions, potholes, poor waste collection, disruptions in infrastructure projects, and unreliable water and electricity supply.

While individual municipalities may fail to implement proper financial control, provincial governments have a constitutional duty to intervene and provide support. Responsibility is distributed among numerous structures, including national and provincial treasuries responsible for financial oversight, municipal councils, mayors, managers, public accounts and audit committees, and disciplinary councils.

Mkhize specifically stressed that political leaders at all levels must recognize that poor audit results directly reflect their own leadership and cannot be explained solely by administrative matters or incompetence of financial departments and chief financial officers. Therefore, the recent actions of the National Treasury are closely linked to Parliament's broader oversight mandate. He added that they will continue to monitor compliance with the conditions set for the affected municipalities to protect communities.

The South African Federation of Trade Unions (SAFTU) and the South African Local Government Association (SALGA) have called for officials to be held accountable following the National Treasury's decision to temporarily suspend fair share transfers for July to 69 municipalities that failed to comply with financial regulations.

Reasons for the fund freeze

The Treasury explained its decision by citing persistent and serious non-compliance with the Municipal Finance Management Act (MFMA) and its supporting regulations, despite support, guidance, interaction, and communication provided. The Department stated that these municipalities were given sufficient written notice and a strong request to take measures to change their financial standing before the funds were blocked. They were also given the opportunity to provide a written justification as to why their funds should not be withheld.

Scale of financial problems

The list of municipalities affected by the restrictions includes major cities such as Johannesburg, Buffalo City, Nelson Mandela Bay, Mangaung, and Matjambeng, as well as district and local municipalities from all provinces in the country. The fair share is an unconditional grant derived from national revenue, which guarantees the ability to provide free basic services to poor households and maintain administrative infrastructure, even if the local tax base is limited. Despite receiving billions through fair shares, these municipalities have found themselves in crisis.

Reports and statistics

The Treasury relies on the recent audit of local government for 2024/25 conducted by the Auditor-General of South Africa, which largely confirms the Treasury's existing assessments. Since 2021/22, municipalities have incurred losses of R24.12 billion due to wasteful and fruitless expenditure. Over the same period, municipalities and their structures incurred R145.21 billion in irregular expenditure, with only R40.14 billion spent in 2024/25. Furthermore, since 2021/22, they have disclosed R118.13 billion in unauthorized expenditure. In 2024/25, 116 municipalities, or 45%, adopted budgets without funding, which is higher than the 113 municipalities (44%) in the previous year's budget. By the end of the 2024/25 financial year, municipalities owed Eskom R3.4 billion in interest and water boards R1.21 billion in interest. Delinquent payments also affected state organs and third parties. The Treasury added that 48 municipalities had outstanding third-party deductions for more than one month.

SAFTU's demands

SAFTU Secretary-General Zwelinzima Vavi stated that corruption, mismanagement, financial misconduct, and the looting of municipal resources have destroyed service delivery and betrayed millions of workers and poor communities. Vavi noted that the latest Auditor-General report revealed the shocking scale of the crisis in local governance, showing persistent management weaknesses, widespread financial misconduct, poor internal controls, rising irregular expenditure, and the continued inability of many municipalities to properly account for public resources. He emphasized the need for decisive action against corruption and misconduct, demanding that municipal managers, chief financial officers, accountants, and political leaders who violate financial management laws face real personal consequences, including criminal prosecution where necessary.

Vavi also called on the National Treasury to abandon the austerity program and reverse the continuous reduction of transfers to local government. He believes that the collapse of municipalities cannot be solved solely through punitive fiscal measures while municipalities operate amid mass unemployment, deindustrialization, and shrinking tax bases. He proposed that the government implement a comprehensive program to restore local governance through professional administration, strengthened financial oversight, investment in local economic development, industrialization, infrastructure expansion, and job creation.

SALGA's position

For its part, SALGA expressed concern that the Treasury cited the non-payment of pension fund contributions, UIF contributions, and PAYE deductions—which had already been deducted from employee salaries—as a reason. The association stated that these funds do not belong to the municipalities and should never be used for other purposes, as such behavior undermines employee rights, public trust, and exposes municipalities to financial and legal risks. SALGA insists on zero tolerance for financial misconduct and persistent non-compliance, demanding that councils, accountants, and oversight bodies investigate irregular expenditure, hold those responsible accountable, and recover losses in accordance with the law.

Expert assessment of the situation

Management expert Andre Duvenhage noted that despite uncertainty regarding the underlying political strategy, the current operations cannot continue normally. He described the current national situation as reaching a critical point, warning that this threshold will soon be crossed in many local municipalities.

The KwaZulu-Natal Treasury has expressed concern regarding municipalities that continue to approve budgets without adequate funding, emphasizing that this practice undermines the region's financial stability.

Status of Municipal Budgets

According to the latest assessment conducted by the KwaZulu-Natal Treasury, most municipalities comply with the requirements of the Municipal Finance Management Act (MFMA). Of the 49 delegated municipalities that submitted and approved budgets for the 2026/27 financial year, the Treasury assessed 43 as having budgeted plans.

Budget Adoption Dynamics

Francois Rogers, the Minister of Finance, noted a noticeable improvement in the adoption of funded municipal budgets for the 2026/27 financial year. He reported that in 2025/26, 19 municipalities adopted unfunded budgets, but this number has decreased to six municipalities for the 2026/27 financial year, based on approved budgets.

Budget Approval Issues

Rogers expressed concern over the fact that the local municipality of Ndumeni has yet to approve its budget for the 2026/27 financial year. He also listed the municipalities that adopted unfunded budgets for the 2026/27 financial year: Mpofana, Impendile, Nkosi Langalibalele, eMadlangueni, Ulundi, and the uThukela district municipality.

Rogers clarified that the status of the local municipality of Ndumeni remains uncertain because, at the time of the provincial treasury's last assessment, the municipality had not adopted its budget. Furthermore, he mentioned that the Amajuba district municipality notified the KwaZulu-Natal Treasury of its budget adoption on June 29, 2026, but the status of this budget is not yet determined. It was also noted that the local municipality of Nkosi Langalibalele resubmitted its budget for the 2026/27 financial year on June 25, 2026, but it has not yet been reassessed by the Provincial Treasury.

Consequences and Countermeasures

Rogers stressed that unfunded budgets jeopardize the provision of vital services to the public. He reiterated that adopting such budgets violates the MFMA and its related provisions. He warned that the Government of Provincial Unity (GPU) will not hesitate to use legislative powers to address instances of non-compliance.

The Minister welcomed the improvement in funded budgets, which reflects stronger adherence to norms and financial discipline. He added that they will continue to act against non-compliance while supporting municipalities in their pursuit of improvement. Rogers noted that joint work is underway with municipalities to improve financial management practices, which is a significant step towards strengthening financial governance and ensuring sustainable service delivery across the province, representing a notable improvement compared to the previous financial year.